Resort founder Blixseth seeks $3.3M in legal fees after Mont. tried to push him to bankruptcy

BILLINGS, Mont. (AP) -- Montana revenue authorities are trying to block former billionaire Tim Blixseth from collecting $3.3 million in attorney fees he's claiming from the state's frustrated efforts to force him into bankruptcy.

Officials said Wednesday that Blixseth should be barred from pursuing the fees while they appeal a July ruling that dismissed the forced bankruptcy case.

The state has alleged the founder of Montana's ultra-exclusive Yellowstone Club owes $57 million in back taxes. If Blixseth goes into bankruptcy and the tax claim holds up, he could be forced to liquidate his assets.

Blixseth, a resident of Washington state, has twice gotten the case dismissed by a now-retired federal judge. That allowed him to seek attorney fees against the plaintiffs in the case under federal bankruptcy law.

In addition to the state, Blixseth also wants to recover the fees from the Yellowstone Club Liquidating Trust. That's a group of creditors who sided with the state as part of the creditors' efforts to collect on a $41 million judgment against Blixseth in the club's 2008 bankruptcy case.

Blixseth gave up the club to his ex-wife shortly before it went into bankruptcy. He's since placed many of his assets in a family trust based in Nevada as a means of shielding it from creditors, according to court records.

Attorneys for the state contend that the money sought by Blixseth reflects charges from dozens of attorneys he employed at hourly rates of up to $750. The state characterized the request as "breathtakingly large" for a bankruptcy case.

The Revenue Department has spent an estimated $800,000 on outside attorneys since the case began in 2011 and has one in-house attorney working on it, officials said Wednesday.

"While Mr. Blixseth is asking the state for $3.3 million in legal fees to pay his 65 attorneys and other consultants, the Montana Department of Revenue has been responsible with public dollars as we attempt to recover unpaid taxes that Mr. Blixseth owes the state and its citizens," Revenue Director Mike Kadas said Wednesday.

A hearing is scheduled Friday before U.S. Bankruptcy Judge William Thurman in Nevada on the state's bid to stop proceedings related to the attorney fees.

Blixseth wrote in a Wednesday email to the Associated Press that "the fees are in line with the national average that lawyers charge, so thus reasonable."

He said he plans to file additional claims for hundreds of millions of dollars in damages against the liquidating trust and the state.

Attorneys for the state said in court filings that Montana would suffer irreparable harm if forced to pay Blixseth since because it would be all but impossible to recover the money if the state prevails on appeal.

The state's claim against Blixseth, which already has been pending for several years, came after a court ruling that he fraudulently transferred a 2005 loan meant for the Yellowstone Club to his personal use.

The state contends that the money he got from the loan was taxable personal income. Blixseth has maintained it was a legitimate business loan intended to finance his creation of an international version of the Yellowstone Club.